Author: Pioneer News Service/New
Delhi
Publication: The Pioneer
Date: January 18, 2002
Few phrases are more frequently
used to describe political and diplomatic pressure than "carrot and stick.
The phrase can lend itself to virtually any interpretation, and the United
States'(US) current support for its "strong ally" Pakistan, has often been
seen in these terms.
The question is whether the "carrots"
have been bigger than the "sticks." It took weeks of "persuasion" before
Pakistan President Gen Pervez Musharraf read out the lines that had been
whetted by Washington.
For his words, and the detention
of hundreds of religious activists, the General has received not just a
pat on the back from US Secretary of State Colin Powell. He has received,
and continues to rake in, substantial economic benefits.
The General's anti-terror "cheques"
are yet to be "encashed." But, bailing out Pakistan from its economic woes
could mean that the US is not utilising its most potent lever in ensuring
that Islamabad reforms its policies. A quick look at post 9/11 largesse
to Pakistan tells its own story.
On November 13, 2001, Senator Sam
Brownback, Republican, introduced legislation aimed at reducing or eliminating
tariffs on Pakistani textiles. The Bill, S 1675, would authorise the President
to reduce or suspend duties on textiles made in Pakistan up through December
31, 2004.
This, Mr Brownback said, "is vitally
important to shore up the economic strength of our strategic ally, Pakistan,
so central to our nation's ability to continue to prosecute the war against
terrorism." Pakistan had provided "invaluable basing rights and intelligence
assistance to the United States." Mr Brownback, is the ranking member of
the Foreign Relations Sub-committee on Near Eastern and South Asian Affairs.
More recently, Pakistan's International
Monetary Fund (IMF) debt to the tune of $ 12.5 billion was rescheduled.
And, what was Pakistan's track record of economic management prior to this?
Pakistan's external debt is at $
31.7 billion, or more than 53 per cent of its Gross Domestic Product (GDP),
while its domestic debt at current exchange rates is a further $ 30 billion,
or 50 per cent of its GDP. This means that its total domestic and external
debt exceeds GDP.
The country's domestic debt as a
proportion of GDP has been steadily increasing, from 43.5 per cent in 1996/7
to 50 per cent today. Debt service in Pakistan amounts to 47 per cent of
total budgetary expenditures, and 63 per cent of domestic revenues.
In total, almost 10 per cent of
its GDP goes into servicing domestic and foreign debt. This makes it the
single largest item of government expenditure. Expenditures on debt servicing
exceed social and poverty related expenditures by a factor of four.
In 1999, the latest date for which
data is available, Pakistan owed $ 12.2 billion to bilateral creditors,
$ 14.2 billion to multilateral creditors and the remainder to commercial
creditors.
Other estimates put the figure higher.
It is felt that Pakistan's increased fiscal and current account deficits
have resulted in an explosive increase in public debt to over Rs 3 trillion
(US $ 49.75 billion) and of external debt to $ 43 billion.
According to latest official projections
presented to the World Bank, IMF and the Paris Club creditors, any meaningful
debt management was becoming increasingly difficult given the massive public
and foreign debt that accumulated during the past eight to 10 years.
The massive rescheduling of Pakistan's
IMF loan follows the approval of a $ 1.3 billion Poverty Reduction Growth
Facility by the Executive Board of the IMF in mid-December, 2001. This
meant the writing off of loans to some considerable extent in order to
help Pakistan improve its balance of payment position and help reduce the
payment of debt servicing.
For the year 2001-02, the debt servicing
payment amounted to Rs 329.2 billion, out of the total budgetary outlay
of Rs 751.7 billion. This act of the US, Western countries and Japan --
the countries to whom Pakistan owes $ 12.5 billion foreign debt which is
33 per cent of its total foreign debt of $ 38 billion -- will help Pakistan
stave off tough decisions. Islamabad's domestic and foreign debt is estimated
to be 115 per cent of its GDP according to State Bank of Pakistan's annual
report (2000-01). Its external debt is 5.5 percent of the total debt. Per
capita debt had exceeded per capita income in 1999. The foreign debt has
been rescheduled twice since January, 1999.
